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Technically Speaking, September 2009

Letter from the Editor

While September is traditionally a time to think about going back to school, on Wall Street it seems more like the time of year to head back to work. Volume is usually lower than average in the summer months as traders focus on vacations more than they do on getting the best bid. As our members gear up to face the challenges of returning to work, we offer up some opinions on recent books that can help them refocus and sharpen their skills. One trend I noticed in my summer’s reading list was the emphasis on volatility. The markets have certainly been volatile recently and several insightful authors have offered tips on how to profit from that volatility. We also have a research piece by Ed Easterling of Crestmont Research which shows how prices respond after experiencing volatility. As always, we hope you find this issue of Technically Speaking to be useful as well as interesting. Please let us know what you like, and what you’d like to see. Send me an

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What's Inside...

The Seven Rules of Wall Street by Sam Stovall

by Sam Stovall, CFP & Michael Carr, CMT

Stovall examines seven well-known pieces of Wall Street wisdom: Let your winners ride, but cut your losses short As goes January, so goes the year Sell in May and then go away There’s no free...

Volatility In Perspective

by Ed Easterling

This article was originally published by Crestmont Research and is reproduced with permission. Who or what is rocking the boat? Market volatility has surged over the past two years; investors have...

Volatility-Based Technical Analysis by Kirk Northington

by Kirk Northington, CMT & Michael Carr, CMT

Many novice technicians blindly trade signals generated by their favorite indicator. Eventually, they blow up their account unless they are fortunate enough to meet a more experienced technician who...

Trend Following (Updated Edition): Learn to Make Millions in Up or Down Markets by Michael Covel

by Michael Covel & Ajay G. Jani, CMT

“Cut Your Losses Short; Let your profits run on.” – Widely attributed to David Ricardo While many are familiar with David Ricardo’s contribution to economics through his “Theory of...

Trading Regime Analysis: The Probability of Volatility by Murray Gunn

by Murray Gunn & Michael Carr, CMT

The first chapter of Gunn’s Trading Regime Analysis is titled “There is NO Holy Grail.” This summarizes the trading philosophy he details in this book. While trade selection and entry and exit...

An Interview with Craig Fullen, CMT

by Craig Fullen, CMT & Yevgen Avramych

This month I had the pleasure of speaking with Craig Fullen, CMT about his career path, trading techniques, the CMT program, and the state of the financial markets as well as the job market in these...

Intermarket Trading Strategies by Markos Katsanos

by Markos Katsanos & Michael Carr, CMT

The study of intermarket technical analysis was pioneered by John Murphy, CMT. His 1991 book, Intermarket Technical Analysis: Trading Strategies for the Global Stock, Bond, Commodity, and Currency...

A Fundraising Reception in celebration of the Opening of the MTAEF/MTA Library at Baruch College

All are cordially invited to attend a Fundraising Reception in celebration of the opening of the MTAEF/MTA Library at Baruch College on Tuesday, November 17, 2009, 5:00 PM – 9:00 PM, at the...

MTA Announcements

MTA Goes to Mumbai, India – Technically Speaking 2009 The MTA recently visited Mumbai and held its first international seminar, Technically Speaking 2009. On Saturday, August 22, 2009, in...

The Seven Rules of Wall Street by Sam Stovall

The Seven Rules of Wall Street by Sam Stovall

Stovall examines seven well-known pieces of Wall Street wisdom:

  1. Let your winners ride, but cut your losses short
  2. As goes January, so goes the year
  3. Sell in May and then go away
  4. There’s no free lunch on Wall Street
  5. There’s always a bull market someplace
  6. Don’t get mad – get even
  7. Don’t fight the Fed

He quantifies each rule and backtests the underlying idea. Not every idea is intuitively quantifiable. For example, rule number 6 – “Don’t get mad – get even” – looks at the advantages of cap-weighted indexes compared to equally-weighted indexes. Since cap-weighted indexes will favor large cap stocks over small caps, they are actually likely to underperform. This is logical to anyone familiar with the fact that small cap stocks outperform over the long-term. Stovall backs this up with data and then offers a strategy to take advantage of this rule.

This book provides detailed test results to

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Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

Contributor(s)

Sam Stovall, CFP

Michael Carr, CMT

Michael Carr, CMT

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Volatility In Perspective

Volatility In Perspective

This article was originally published by Crestmont Research and is reproduced with permission.

Who or what is rocking the boat? Market volatility has surged over the past two years; investors have had to hold on and try to figure out what this means. Is the current level of volatility “normal” or is it extreme? The purpose of this presentation is to graphically put volatility into historical perspective. It will be updated every quarter or so until volatility again falls to levels of investor disinterest…which could be a while if history is a guide for what can be expected.

The first look at volatility uses the common measure of standard deviation. For this analysis, the monthly percentage changes in the S&P 500 Index are used and then the result is annualized to reflect a measure of the amount of variability in the market. This measure is often used by financial market professionals as

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

Contributor(s)

Ed Easterling

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Volatility-Based Technical Analysis by Kirk Northington

Volatility-Based Technical Analysis by Kirk Northington

Many novice technicians blindly trade signals generated by their favorite indicator. Eventually, they blow up their account unless they are fortunate enough to meet a more experienced technician who teaches them the valuable lesson that we actually trade price, not our indicators. After reading Northington’s original work, I realized that more than price, technicians pursue and profit from volatility. In this book, he offers insights into the importance of volatility to traders.

While profits and losses are measured by the entry and exit price, volatility measures the move that led to the trading opportunities. It is actually volatility which leads to profits, and without volatility, trading isn’t possible for the majority of traders. Flash trading, perhaps soon to be outlawed by regulators, doesn’t require volatility but does require lightning fast computer connections and physical proximity

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

Contributor(s)

Kirk Northington, CMT

Michael Carr, CMT

Michael Carr, CMT

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Trend Following (Updated Edition): Learn to Make Millions in Up or Down Markets by Michael Covel

Trend Following (Updated Edition): Learn to Make Millions in Up or Down Markets by Michael Covel

“Cut Your Losses Short; Let your profits run on.”
– Widely attributed to David Ricardo

While many are familiar with David Ricardo’s contribution to economics through his “Theory of Competitive Advantage.” fewer are aware that he was also a large speculator in shares and British consuls (perpetual bonds) during the early 19th century, and as a result amassed a significant fortune in the process. His description on how to succeed in of speculation is easily distilled down to two words: “Trend Following.”

In his latest revision to the book of the same name, author Michael Covel reintroduces the reader to a trading methodology that has stood the test of time, and recently produced some of the big winners of the 2008 market debacle. He does so in a tone that often betrays bewilderment that the mainstream media for the most part have failed to pick-up on the storyline. Specifically, that the markets

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Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

Contributor(s)

Michael Covel

Ajay G. Jani, CMT

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Trading Regime Analysis: The Probability of Volatility by Murray Gunn

Trading Regime Analysis: The Probability of Volatility by Murray Gunn

The first chapter of Gunn’s Trading Regime Analysis is titled “There is NO Holy Grail.” This summarizes the trading philosophy he details in this book. While trade selection and entry and exit techniques can be automated to a great extent, ultimately he realizes no single tool will work in all market conditions. For this reason, he explains a dozen standard technical tools in Part II of the book. Some CMT candidates would benefit from a practical review of the basic tools of technical analysis. In this section, they can find clear explanations of many fundamental concepts illustrated with examples suitable for professionals.

A key insight of the author is that tools often fail when they are being applied in the wrong trading regime. The term trading regime is used to define whether the market is

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Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

Contributor(s)

Murray Gunn

Michael Carr, CMT

Michael Carr, CMT

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An Interview with Craig Fullen, CMT

An Interview with Craig Fullen, CMT

This month I had the pleasure of speaking with Craig Fullen, CMT about his career path, trading techniques, the CMT program, and the state of the financial markets as well as the job market in these difficult economic times.

Craig obtained an undergraduate degree in accounting and then went on to receive a law degree from Rutgers University. Following law school, he worked as a corporate lawyer for a large law firm and mainly focused on mergers & acquisitions and also worked on SEC securities-related filings, including some IPOs. IPO filings are naturally affected by market conditions and because the IPO filing process takes a substantial amount of time, having an idea of where the market would be in two or three months can be very useful. Craig began to develop interest in the financial markets when he began to notice that companies would often try to rush IPOs in favorable

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

Contributor(s)

Craig Fullen, CMT

Yevgen Avramych

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Intermarket Trading Strategies by Markos Katsanos

Intermarket Trading Strategies by Markos Katsanos

The study of intermarket technical analysis was pioneered by John Murphy, CMT. His 1991 book, Intermarket Technical Analysis: Trading Strategies for the Global Stock, Bond, Commodity, and Currency Markets, was the first to identify tradable relationships between these markets. His work included a number of charts which demonstrated the leading and lagging relationships.

Six years later, Murray Ruggiero published Cybernetic Trading Strategies and moved beyond Murphy’s visual approach to intermarket relationships. Ruggiero presented trading systems that profitably exploited the connections between markets. He detailed rules that allowed traders to seek relationships between other markets, and moved the field of study towards the twenty-first century.

Finally, after twelve years, Katsanos revisits the idea of intermarket technical analysis and builds on the work of his predecessors. This work is largely based on the ideas of correlation and linear regression. The concepts are thoroughly explained in a comprehensible

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

Contributor(s)

Markos Katsanos

Michael Carr, CMT

Michael Carr, CMT

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A Fundraising Reception in celebration of the Opening of the MTAEF/MTA Library at Baruch College

A Fundraising Reception in celebration of the Opening of the MTAEF/MTA Library at Baruch College

All are cordially invited to attend a Fundraising Reception in celebration of the opening of the MTAEF/MTA Library at Baruch College on Tuesday, November 17, 2009, 5:00 PM – 9:00 PM, at the Newman Library at Baruch College (25th and Lexington, New York).

At this event you can…

  • Tour the new MTAEF/MTA Library facilities
  • Enjoy cocktails and hors d’oeuvres with old friends
  • Meet our distinguished guest speakers
    • Robert Barbera, Ph.D.
      Executive Vice President & Chief Economist at ITG, Investment Technology Group
    • John Mendelson
      Senior Vice President, Market Analysis at Potomac Research Group
    • Jason Trennert
      Managing Partner & Chief Investment Strategist at Strategas Research Partners
    • Louise Yamada, CMT
      Managing Director of LYA
    • Edward Yardeni, Ph.D.
      President of Yardeni Research, Inc
  • Support the MTA Educational Foundation’s continued effort to introduce technical analysis to colleges and universities

Participate in the fundraising auction “Take a Technical Analyst to Lunch or Dinner” on eBay from October 12-21, 2009. Details available at www.mtaef.org and www.mta.org. Results will

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

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MTA Announcements

MTA Announcements

MTA Goes to Mumbai, India – Technically Speaking 2009

The MTA recently visited Mumbai and held its first international seminar, Technically Speaking 2009. On Saturday, August 22, 2009, in conjunction with UTVi, the MTA held a FREE seminar for all MTA members at the Taj President Hotel, in Mumbai. This seminar focused on the current state of global Technical Analysis (TA) and discussed the upcoming establishment of a local TA Indian Association. This event featured Ralph Acampora, CMT and Philip Roth, CMT live in Mumbai, with webcasts from Mark Galasiewski, Jordan Kotick, CMT, Jeffery Lay, CMT, Phil Erlanger, CMT and others from the local Indian market. To view a slideshow of pictures from this event, please click here. Recordings of the presentations will be made available shortly.

MTA Educational Web Series

Registration is now open for the following upcoming presentations of the FREE MTA Educational Web Series.

    • Sign

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

New Educational Content This Month

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